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Second Circuit Rejects Third Circuit’s Views On Class Member Ascertainability

On July 7, 2017, in In re Petrobras Securities,[1] a unanimous Second Circuit Panel joined the “growing consensus” of circuit courts—including the Sixth, Seventh, Eighth, and Ninth—holding that Rule 23’s implied “ascertainability doctrine” requires no more than “that a class be defined using objective criteria that establish a membership with definitive boundaries.” Petrobras leaves the Third Circuit standing alone in a lopsided circuit split, with three Third Circuit decisions in the past five years applying a “heightened ascertainability requirement” requiring a “showing of administrative feasibility at the class certification stage.”[2]

Discussion

In Petrobras, the Second Circuit’s clarified its 2015 decision in Brecher v. Republic of Argentina.[3] While the Petrobras defendants argued that Brecher required a showing of administrative feasibility, the Second Circuit Panel responded that the defendants had largely relied on Third Circuit authority. The Second Circuit Panel declared that its Brecher decision “ask[ed only] whether the class was defined by objective criteria that made the class’s membership sufficiently definite, not whether the class was administratively feasible.” The Third Circuit’s administrative feasibility standard would require a difficult showing at the class certification stage that a method exists pursuant to which a district court could easily identify potential class members and verify or confirm through purchase records or other evidence of class membership that putative members were properly within the boundaries of the proposed class.[4]

Instead, according to the Second Circuit Petrobras Panel, the proper ascertainability requirement calls only for class plaintiffs to undertake a “modest” inquiry of determining “whether a proposed class is defined using objective criteria that establish membership with definite boundaries.” The Panel underscored the simplicity of this burden at the class certification stage, noting that “identifiable does not mean identified; ascertainability does not require a complete list of class members at the certification stage.” Nor does the inquiry concern itself with “the plaintiffs’ ability to offer proof of membership under a given class definition.” Instead, the inquiry is satisfied unless the “proposed class definition is indeterminate in some fundamental way,” such that there would be no “clear sense of who is suing about what.”[5]

“With all due respect to [their] colleagues on the Third Circuit,” the Petrobras Panel took issue with the line of cases from that circuit—including its most recent Byrd decision—holding that not only must a “class [be] defined with reference to objective criteria,” but also that “there is a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.” Noting that “[c]ourts are not free to amend [the Federal Rules of Civil Procedure] outside the process Congress ordered,” the Second Circuit Petrobras Panel stressed that the heightened ascertainability requirement adopted by the Third Circuit was neither “compulsory” under, nor “complementary” to, Rule 23, adding that the “text of Rule 23 limits judicial inventiveness” as to the requirements imposed on class action litigants.[6]

To the contrary, the Second Circuit Panel noted that while, “[o]n its face,” the heightened requirement appeared to simply “duplicate Rule 23’s requirement that the district courts consider ‘the likely difficulties in managing a class action,’” the defect in the Third Circuit’s reasoning is more than a “redundancy.” “Ascertainability is an “absolute standard,” while manageability “is a component of the superiority analysis,” which is “comparative in nature” and asks whether a class action is “superior to other available methods for fairly and efficiently adjudicating the controversy.”[7]

According to the Second Circuit Panel, imposing an absolute ascertainability requirement that mandated administrative feasibility could cause dire results: it could counsel against certification in actions “in which there may be no realistic alternative to class treatment”—such as consumer class actions where a defendant may not have maintained accurate records—which would run contrary to the purpose of Rule 23 and the very purpose of the superiority prong’s balancing test. Noting that “it may be that challenges of administrative feasibility are most prevalent” in such cases, and underscoring the admonition that “failure to certify an action under Rule 23(B)(3) on the sole grounds that it would be unmanageable is disfavored and should be the exception rather than the rule,” the Petrobras Panel “conclude[d] that an implied administrative feasibility requirement would be inconsistent with the careful balance struck in Rule 23.”[8]

The Second Circuit Petrobras Panel then applied the clarified requirements to the district court’s certification order in the case before it. The class certified below included “persons who acquired specific securities during a specific time period, as long as those acquisitions occurred in ‘domestic transactions.’” These criteria were “clearly objective.” While appellants vigorously challenged the “practicality of making the domesticity determination for each putative class member,” the court emphasized that the ascertainability requirement only requires that such a determination be “objectively possible.” Courts are not free to expand upon this requirement, which may be modified only within the Congressionally-mandated rule-making processes. With that recognition in mind, the Petrobras Second Circuit Panel affirmed the district court’s certification order as it pertained to ascertainability.[9]

Analysis

As had been adopted by the Sixth, Seventh, Eighth, and Ninth Circuits, the ascertainability requirement espoused by the Second Circuit in Petrobras would appear to be the correct interpretation of Rule 23. There clearly is an ever-widening chasm between the “growing consensus” of like-minded circuit courts and the Third Circuit, which after Petrobras, still stands alone.

For this reason, as third Circuit Judge Rendell stated in his concurrence in Byrd, it may be time for the Third Circuit to “retreat from [its] heightened ascertainability requirement” by eliminating the administrative feasibility prong born of its prior decisions in Carrera and Marcus. If not, the Third Circuit may continue to impose unwarranted burdens on class action litigants practicing within its district courts while simultaneously exposing itself to criticism from above should the issue wind its way up to the Supreme Court.[10]

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